IHS Global Insight Perspective | |
Significance | The deal will see both groups benefit from the other's International Direct Dial (IDD) services. |
Implications | Each group has indicated that it sees the deal helping it to achieve economies of scale and improving its presence on the international call markets. |
Outlook | With BT's Global Services Division frequently highlighted as performing badly and Tata facing strong domestic competition, the route to increased international voice telephony provides both groups with welcome, enlarged revenue streams. |
BT Group and India's Tata Communications have agreed a five-year partnership which will see each supply the other with international voice services beyond their respective markets of international operation. The deal will see Tata supply BT's International Direct Dial (IDD) and various other voice termination services in countries beyond BT's international footprint. BT will also have access to Tata's routing capabilities and online management systems. In return, BT will become Tata's main distribution channel for its IDD traffic into the United Kingdom, with an option in place to expand the agreement into other European markets. No financial details of the deal have been disclosed.
Outlook and Implications
- Mutually Beneficial: The deal is being touted by both parties as mutually beneficial, allowing each to draw on the other's strengths and achieve economies of scale, as they expand their portfolios of wholesale products and services. BT has indicated in a press release that the routing capabilities and management systems will provide it with greater economies of scale, improving its competitiveness on the international calls market. Tata has indicated that the deal could add around six billion minutes of traffic to its network, according to a report in the Economic Times. The deal is the latest example of major telcos collaborating in order to reduce costs while expanding their portfolios, following a recent spate of network-sharing agreements, notably in the United Kingdom (see United Kingdom: 25 June 2009: Vodafone and O2 Report Successful Start to Infrastructure-Sharing Agreement).
- Tata Deal to Improve BT's International Fortunes: BT's job cuts earlier this year served as a reminder of its exposure to the global financial crisis, and with its highly competitive domestic market offering little room for growth it makes sound strategic sense for it to pursue international opportunities such as the partnership with Tata. With the company's Global Services Division frequently highlighted as performing poorly, moves have been undertaken to focus on improving networked IT services to multinational clients and offering seamless global connectivity, and the Tata deal will complement this with an improved, broader voice services offering.
- International Call Traffic Offsetting Tata's Domestic Competition: With Tata facing increased competition in its domestic market, from both fixed-line rivals and entrants into the burgeoning Indian mobile market, international call traffic is increasingly regarded as a major revenue stream. Tata's commitment to developing its international operations has already seen it announce a US$430-million investment package in the Asia-Pacific region, aimed at satisfying increasing outsourcing demands from global multinational corporations looking towards emerging markets (see Asia-Pacific: 12 February 2009: Tata Communications Announces US$430-mil. Investment in Asia-Pacific Region). Although its resources will therefore be able to satisfy BT's goals in this sense, Tata itself stands to benefit from potential exposure to the better-developed, and therefore less potential-laden but more lucrative markets of Western Europe.